Financially troubled Portugal raised euro1.255 billion in a Treasury bill sale Wednesday and its borrowing costs fell as tension over Europe's debt woes continued to ebb. Portugal is one of the most vulnerable economies in the 17-nation eurozone due to its high debt and anemic growth, and it is scrambling to avoid a bailout by adopting harsh austerity measures. While markets remain nervous about the financial prospects of Portugal and other debt-heavy eurozone nations, investors have taken some heart from pledges by European officials that they are are working on a long-term solution to the debt crisis. An announcement is expected by early next month.

The government was able to borrow Wednesday at lower interest rates, a positive sign as it seeks to keep borrowing costs from turning into a financial death spiral. Portugal's debt agency said it raised euro800 million in 12-month bills at an average yield of 3.7 percent and euro455 million in 6-month bills at 2.98 percent. Two weeks ago, Portugal sold 12-month bills at 4.03 percent. In the previous auction of 6-month bills, almost a month ago, the yield was 3.69 percent. Portugal's borrowing costs soared last year, reaching euro-era record highs, amid market fears about its fiscal soundness and wider concerns about the eurozone's financial stability. But the country has experienced no difficulty raising money so far, and debt sales so far this year have drawn strong investor demand. The national debt agency said there was demand for almost five times the amount of 6-month bills on offer in Wednesday's sale while the longer-term bills drew demand 2.6 times higher than the supply.

The yield on Portugal's 10-year bonds has also dropped in recent days, reaching 6.81 percent — a level that is still high, however, and keeps up the pressure on Portugal to restore market confidence in its economy. Getting cheaper loans is vital for Portugal which needs to raise up to euro20 billion on financial markets this year. The continent's financial and economic woes are far from over as austerity budgets in Portugal, Spain, Greece and Ireland cut into economic growth. Analysts expect an austerity plan featuring tax hikes and pay cuts to pitch Portugal back into recession for the second time in three years.

That would hurt tax revenue and place further stress on the budget which is already being drained by high interest rates on its borrowings and increased welfare payments resulting from a jobless rate that has risen close to 11 percent. The government has repeatedly said it does not want or need international financial assistance of the kind provided last year to Greece and Ireland. Moody's Investor Services has warned it may cut its A1 rating on Portugal, while Standard & Poor's Ratings Services is also considering a downgrade.

Isabel Palma has been trying to sell a seven-story building in Lisbon’s business district for six years. It doesn’t help that the property isn’t generating enough income to pay for maintenance and she can’t raise rents. The six remaining tenants, including law firms and a hostel, have had their rents frozen for years or simply don’t pay anymore because they don’t fear eviction, according to the landlady, whose family has owned the 1,610 square-meter (17,330 square-foot) property since 1909. She gets a total of 1,100 euros ($1,490) a month in rent.

“I’ve spent six years in court and thousands of euros on lawyers trying to terminate leases with tenants who pay little or nothing,” Palma, 78, said in an interview. “No one wants to buy into a problem like that.” Century-old controls on rents and evictions are stifling investment in Portuguese real estate and leaving the country with crumbling city centers as rental income fails to keep pace with maintenance costs, according to landlords and property industry groups. The government has pledged to introduce measures in March to streamline rules on rental properties as it seeks to jumpstart an economy that’s had one of Europe’s weakest growth rates over the last decade.

While legislation in 1981 lifted rent controls on new contracts and a 1990 law allowed landlords to set expiry dates on leases, more than half of Portugal’s rentals are subject to the older restrictions. That means most owners are still coping with contracts that never expire and rates that are frozen or limited to inflation adjustments, said Miguel Marques dos Santos, an attorney specializing in real estate at the Lisbon office of Garrigues. Even death isn’t always enough to break a lease because tenants can pass on a contract to their children, spouses or parents.

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Portugal PM says exports can offset economic pain

Portugal's government expects growing exports can offset the negative effect on the economy of austerity measures adopted to slash the budget deficit, Prime Minister Jose Socrates said on Tuesday. Socrates told a congress of exporters the government's priorities were to reduce the budget deficit to 4.6 percent of gross domestic product this year from around 7 percent in 2010 and put public finances in order, but also to maintain economic growth after last year's estimated 1.3 percent expansion. Many economists expect Portugal to slide into a new recession this year as tax hikes and public sector wage cuts imposed by the government reduce consumption.

Slashing the deficit is vital to convincing investors Portugal can solve its public finance and debt problems on its own without seeking a bailout as Ireland and Greece did. "In 2011 Portugal will make one of the deepest and most ambitious budget adjustments ... needed to guarantee the international credibility of our economy, guarantee financing of our economy and its growth," Socrates said.

"Exports is an area where we can fight for economic growth in 2011 and compensate for the recessive effect that the budget austerity measures inevitably have on the economy," he said.The government is banking on continued export growth, especially to new markets in fast-growing emerging economies, to eke out economic growth of 0.2 percent this year. Analysts say exports surprised on the positive side last year and should continue rising. However, they warn that export diversification will take time to bear fruit, while Portugal's main trading partner and neighbour Spain is itself implementing tough austerity.